Seller concessions are closing cost contributions that a home seller agrees to pay on the buyer's behalf, reducing the out-of-pocket cash a buyer needs to close the deal. They can cover lender fees, appraisal charges, title costs, prepaid insurance, property taxes, and even mortgage discount points — all negotiated into the purchase contract before closing day. For buyers who have their down payment ready but are stretched thin by closing costs, seller concessions are often the financial bridge that makes homeownership possible.
What Seller Concessions Actually Cover
When a seller agrees to pay concessions, those funds are applied directly at the closing table as a credit to the buyer. They appear on the Closing Disclosure as a line item and reduce the total cash a buyer must bring to close. Common expenses covered by seller concessions include loan origination fees, appraisal fees, title search and insurance fees, prepaid homeowner's insurance, prepaid property taxes, and mortgage interest for the days between closing and the first payment due date.
One of the most valuable — and underused — applications of seller concessions is funding a mortgage rate buydown. Rather than applying the seller's contribution only toward standard closing fees, buyers can direct those funds toward purchasing discount points that permanently or temporarily lower their interest rate. A seller-funded 2-1 buydown, for example, reduces the buyer's rate by 2% in year one and 1% in year two before settling at the contract rate from year three forward. This can meaningfully reduce monthly payments during the early years of a loan when cash flow tends to be tighter.
Understanding what seller concessions cannot cover is equally important. No loan program — conventional, FHA, VA, or USDA — allows seller concessions to be applied toward the buyer's required down payment. The minimum down payment must come from the buyer's own funds or approved gift sources. Concessions also cannot be structured as cash payments made directly to the buyer outside of closing. All funds must flow through the settlement process and appear on the Closing Disclosure. Attempts to route seller payments around the closing table are treated as mortgage fraud.
Seller Concession Limits by Loan Program
Each loan program sets its own cap on how much a seller can contribute. If a concession exceeds the program limit or the buyer's actual closing costs — whichever is lower — the excess must be removed from the contract before closing. Your lender will flag any overage during underwriting, so it pays to know the limits before you write your offer.
Conventional Loans
Conventional loans set concession limits based on down payment size. For a primary residence or second home, buyers putting down less than 10% are capped at a 3% seller contribution. That cap rises to 6% for down payments between 10% and 25%, and to 9% for buyers putting down 25% or more. Investment properties are capped at 2% regardless of down payment.
The tiered structure has a practical implication: buyers using a conventional loan with a minimal down payment have the tightest concession limits. On a $400,000 purchase with 5% down, the maximum seller contribution is $12,000. If your actual closing costs exceed that amount, you'll need to cover the difference yourself. This is worth factoring in when deciding whether a conventional loan or a government-backed program better fits your cash position.
FHA Loans
FHA loans allow seller concessions up to 6% of the purchase price, making them one of the more flexible options for buyers who need help with closing costs. On a $300,000 purchase, the seller can contribute up to $18,000 — typically more than enough to cover all standard closing expenses on a loan of that size. FHA-eligible concession items include customary closing costs, the upfront mortgage insurance premium, prepaid taxes and insurance, and permanent or temporary interest rate buydowns.
The 6% cap applies regardless of down payment, which is part of what makes FHA loans attractive for first-time buyers. With a minimum 3.5% down payment requirement and a generous seller concession allowance, buyers can keep more cash in reserve after closing, which matters because new homeownership comes with expenses that don't appear on the Closing Disclosure.
VA Loans
VA loans have the most flexible seller concession structure of any loan program. Sellers can pay 100% of the buyer's customary closing costs with no percentage ceiling, plus an additional 4% of the purchase price in what VA guidelines call seller concessions — which can include prepaid expenses, the VA funding fee, property taxes, homeowner's insurance, and even the payoff of certain debts.
In practical terms, this means a VA buyer purchasing a $350,000 home could have the seller cover all customary closing costs plus up to $14,000 in additional concessions. For eligible veterans and active-duty service members, this combination can effectively eliminate out-of-pocket costs at closing entirely, which is one of the reasons the VA loan benefit is considered one of the strongest financial tools available to those who've served.
USDA Loans
USDA loans cap seller concessions at 6% of the purchase price. Sellers can contribute toward customary closing costs, prepaid items, and the USDA upfront guarantee fee. Since USDA loans require no down payment for qualified buyers in eligible areas, the 6% concession limit often covers all closing costs — making this one of the lowest-barrier paths to homeownership for qualified buyers.
When Sellers Are Most Likely to Say Yes
Market conditions drive how willing sellers are to offer concessions. In a buyer's market — where homes stay on the market longer, and buyers have more options — concessions are common. Sellers in this environment understand that offering to cover some closing costs is often more palatable than cutting their asking price, since the sale price remains intact for future appraisal comparisons in the neighborhood.
Even in tighter markets, motivated sellers will consider concessions. A seller facing a deadline — a job relocation, a pending purchase on another home, or simply the desire to avoid carrying costs through another month — may prefer a full-price offer with a concession request over a lower offer without one. Similarly, if the home inspection surfaces deferred maintenance issues, negotiating a credit instead of repairs is a common and efficient resolution that keeps the deal moving.
The key is that the request must be realistic relative to market conditions. Asking for a 6% concession on a home that received four offers over asking is unlikely to land. Asking for 2-3% in a market where the home sat for 45 days is entirely reasonable. Your real estate agent's reading on local conditions should directly inform what you ask for and how you frame it.
How to Negotiate Seller Concessions Without Losing the Deal
The most effective way to request seller concessions is to build the ask into your initial offer rather than introducing it mid-negotiation. A well-structured offer acknowledges the seller's pricing expectations while clearly stating the concession request upfront. Last-minute concession requests — especially those introduced after an offer is already accepted — are far more likely to create friction and derail the deal.
One technique that works well in moderate markets is pairing a slightly higher offer price with a concession request. If a home is listed at $375,000 and you want $10,000 in concessions, offering $385,000 with a $10,000 seller contribution gives the seller their psychological price point while effectively netting you the same outcome. Your appraiser still needs the purchase price to be supported by comparable sales, so this approach has limits — but in markets where values support it, the strategy is clean and effective.
Getting pre-qualified before you shop is essential to executing this strategy well. When you know your loan program, your purchase price range, and your estimated closing costs, you can walk into negotiations with a specific number in mind rather than guessing. Sellers respond better to concrete, documented requests than vague asks for "help with closing costs."
Seller Concessions and the Appraisal
One question buyers often ask is whether requesting seller concessions affects the home's appraised value. The short answer is no — the concession itself doesn't change the appraised value. Appraisers evaluate the purchase price relative to comparable sales, not the terms of seller contributions. However, the purchase price does matter. If you inflate the offer price to accommodate a concession and the home doesn't appraise at that price, you'll need to renegotiate or cover the appraisal gap yourself.
This is why it's important to discuss your concession strategy with your loan officer before you write the offer, not after. A good mortgage professional will help you structure the transaction in a way that accomplishes your cash-flow goals without creating an appraisal problem.
Making Seller Concessions Work for Your Purchase
Seller concessions are one of the most practical tools in the homebuying process. Still, they only deliver their full value when you understand the rules, know your limits by loan type, and negotiate with a clear strategy from the start. Whether you're using an FHA loan with its 6% allowance, a VA loan with its unmatched flexibility, or a conventional loan structured around your down payment tier, there's a version of this strategy that can work for your transaction.
The buyers who use concessions most effectively are the ones who prepare before they shop — with financing in place, closing cost estimates in hand, and a mortgage team ready to guide the numbers.